Monetary Policy Review: RBI maintains key lending rate at 6.25%

Mumbai, April 6: The Reserve Bank of India (RBI) in its first bi-monthly monetary policy review of 2017-18 on Thursday kept its key lending rate (repo rate) unchanged at 6.25 per cent, while hiked reverse repo rate to 6 percent.

The announcements were made by Monetary Policy Committee, headed by RBI Governor Urjit Patel.

GVA growth is projected to be 7.4% in 2017-18 as compared to 6.7% in 2016-17. MSF (Marginal Standing Facility) and the bank rate is 6.50 percent.

RBI Governor Urjit Patel said, “RBI focused on removing liquidity overhang in system. There was surge in liquidity in system after demonetisation that RBI had to absorb.”

The inflation is projected to be 4.5% for the first half of 2017-18 and 5% for second half of the year

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“Consequent upon the narrowing of the LAF (liquidity adjustment facility) corridor, the reverse repo rate under the LAF is at 6.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate are at 6.50 per cent,” an RBI policy statement said.

“The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth,” it added.

THe RBI said risks are evenly balanced around the inflation trajectory at the current juncture. “There are upside risks to the baseline projection,” it said.

“Inflation developments have to be closely and continuously monitored, with food price pressures kept in check so that inflation expectations can be re-anchored.

“At the same time, the output gap is gradually closing. Consequently, aggregate demand pressures could build up, with implications for the inflation trajectory,” it added.

At its last policy review in February, while holding rates at 6.25 per cent, the central bank had changed its policy stance from “accommodative” to “neutral”.

Expectations that the RBI will maintain status quo on rates had been fuelled by inflation numbers, with wholesale inflation soaring to over a three-year high of 6.55 per cent in February and retail inflation climbing to 3.65 per cent due to rise in food and fuel prices.

Wefornews Bureau

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